CHAPTER ONE

AN OVERVIEW ENTREPRENEURSHIP
1.1 Definitions of the terms Entrepreneur and Entrepreneurship
The definition of an entrepreneur has evolved over time as the world’s economic structure has changed
and becomes more complex. From its beginning in the middle ages, where it was used in relation to
specific occupations, the notion of the “entrepreneur” has been refined and broadened to include concepts
that are related to the person rather than the occupation. Risk taking, innovation, and creation of wealth
are examples of the criteria which have been developed as the study of new business creations has
evolved.
The words entrepreneur and entrepreneurship have acquired special significance in the context of
economic growth, in a rapidly changing socio-economic and socio-cultural climates, particularly in
industry, both in developed and developing countries. Questions: Who is an entrepreneur? What is
entrepreneurship? And what is entrepreneurial process? Are asked more and more frequently, reflecting
the increased national and international interest in the field? However, in spite of all these interests,
universally accepted definitions have not yet emerged.

The concept of entrepreneur and entrepreneurship vary from country to country as well as from period to
period and the level of economic development thoughts and perceptions. Although there are hundreds of
definitions for each, entrepreneur and entrepreneurship, the following are considered in this course.

Definitions of an Entrepreneur and Entrepreneurship

1. Entrepreneur (Oxford Dictionary) – Person who undertakes an enterprise with chances of profit
or loss. (As we have understood, Entrepreneur is a person who undertakes a business activity of
which he/she has no background and faces considerable risks in the process. If either of the two
elements, i.e., “no background” or “considerable risk” is missing in the venture, it is no
entrepreneurship).
2. Entrepreneur (Encyclopedia): An individual who bears the risk of operating business in the face
of uncertainty about the future conditions.
 An Entrepreneur is an individual who, propelled by an idea, personal interest, goals, and
ambition, brings together the financial and human resources, equipment, facilities to establish
and manage a business enterprise (Donnelly).
 An Entrepreneur is the one who incubates new ideas, starts a business based on these ideas,
and provide added value to the society on his/her independent initiative.(H. Molt)
 An entrepreneur is an “energetic, single minded” person having mission and a clear vision
he/she intends to create out this vision a product or service that improves the lives of million.
(David Silver).
The term entrepreneur is defined in the variety of ways. Yet, no consensus has been arrived at on precise
and universally accepted definition that states the skills and abilities that makes a person a successful
entrepreneur. The following are few of the definitions given by different authors:
Common Meaning – one who starts his own, new and small business?

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 3. Entrepreneurship: It is a philosophy or process through which an entrepreneur seeks innovation
and employment.
 Dr. C.B. Gupta defines entrepreneurship that it is the process of identifying opportunities in the
market place, marshalling the resources required to pursue these opportunities and investing the
resources to exploit the opportunities for long term lap gains. It involves creating wealth by bringing
together resources in new ways to start and operate an enterprise.
 “Entrepreneurship is creating and building of value form practically nothing, that is, it is process of
creating or seizing an opportunity and pursuing it regardless of the sources currently controlled.”
(Timmos)
 Entrepreneurship is the process of identifying, developing, and bringing a vision to life. The vision
may be an innovative idea, an opportunity, simply a better way to do something. The end result of this
process is creation of a new venture, formed under conditions of risk and considerable uncertainty.

Entrepreneur Entrepreneurship Enterprise

Person Process or Philosophy Object

1.2 A Historical Perspective of Entrepreneurship

According to Australia Department of Family and Community Services (2003) the term “entrepreneur”
has its origins in the French verb “entreprendre” and the German word “unternehmen”, both of which
mean “to undertake”. The word was used in France in the early sixteenth century to refer to those who
undertook military expeditions through the ages; the concept of entrepreneurship has shown a significant
development and change in terms of scope.
Entrepreneurship Theories
1600 – French verb – Entreprendre – to undertake.
1700 – Person bearing Risk or Profit in a fixed price contract (Risk)
1725 – Richard Cantillon – Person bearing risks is different from Capital Supplier (Risk)
1803 – J. B. Say- Shifts economic resources out from an area of lower to higher productivity & greater
yields (Value Addition)
1934 – Joseph Schumpeter – Innovator and develops untried technology (Productivity &Innovation)
Entrepreneurs are people who create new business activity in the economy and bear considerable business
risk in the process. This is often done by starting new companies. But they can also create new business
activity by introducing a new product or creating a new market

In the Early Period an “entrepreneur” was a merchant adventurer who signs a contract with a money
person to sell his goods. The merchant adventurer traveled great distances to find a market for the goods
and played the active role in selling the goods.

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During the Middle Age, the term entrepreneur was given to both an actor and a person who run large
production projects. This individual did not take any risk but simply administered the project using the
resource provided by the government of the country. The typical entrepreneur was the cleric who was
responsible for the construction of great building such as castles and cathedrals. Also in the early 1600s,
the French man who organized and led military expeditions were called “Entrepreneur.”

The concept of risk in the notion of entrepreneurship developed in the 17th century, with an entrepreneur
being viewed as a person who entered a contractual arrangement with the government to perform a
service or supply stipulated products. Since the contract price is fixed, any resulting profits or losses
reflected the efforts of the entrepreneurs. In the late 19 th and early 20th centuries, entrepreneurs were
frequently not distinguished from managers and were mainly viewed from and economic perspective:
“Briefly stated, the entrepreneur organizes and operates an enterprise for personal gain. He
pays current prices for the materials consumed in the business, for the use of land, for the
personal services he employs, and for the capital he requires. He contributes his own initiative,
skill and ingenuity in planning, organizing, and administrating the organization. He also
assumes the chance of loss and gain consequent to unforeseen and uncontrollable
circumstances. The net residue of the annual receipts of the enterprise after all costs have been
paid, he retains for himself.” (Hisrich, 1989:8)
In the middle of the 20th century, the notion of an entrepreneur as an innovator was established:
“The function of entrepreneurs is to reform or revolutionize the pattern of production by
exploiting an invention or, generally, an untried technological possibility for producing a new
commodity or producing an old in a new way, opening a new source of supply of materials or a
new out let for product, by reorganizing a new industry.”

1.3 Standard (New) Definition

Entrepreneurship is the process of creating something different with value by devoting the necessary
time and effort, assuming the accompanying financial, psychic, social risks and receiving the resulting
rewards of monetary and personal satisfaction and independence.
New Definition involves four aspects
(a) The creation process
(b) Devotion of time and efforts
(c) Assumption of risks
(d) Rewards of independence, satisfaction, money.
In all most all the definitions of entrepreneurship, there is agreement that basic elements such as : i) risk
taking, ii) initiative taking, iii) organizing and reorganizing, iv) vision, and v) wealth creation are
involved. More than these the definition for the concepts entrepreneur and entrepreneurship include: a)
Decision making; b) Using available resources in novel ways; c) Action orientedness; d) The ability to see
business opportunities, the ability to gather resources to take advantage of them and the ability to take
action; and e) The ability to search for change, respond to it, and exploit it.

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 “The concepts of entrepreneur and entrepreneurship incorporate basic qualities of leadership, innovation,
enterprise, hard work, vision, risk taking and maximization of profit” (Vasant).
1.4 Types of entrepreneurship
There are different kinds of entrepreneurs based on the criteria used to classify entrepreneurship.
Source of capital: Based on the source of capital entrepreneurship can be divided into two as private and
collective entrepreneurship. The first one is a form of entrepreneurship that is carried out by an individual
on the basis of his or her own property. Collective entrepreneurship is carried out by two or more
entrepreneurs on the bases of collective property, that is, capital contributed by the entrepreneurs.
Business idea generation: Based on the business idea generation Entrepreneurship can be divided into
three as technological, geographical and sociological. A technological entrepreneur invents a new
technology to produce new products or new processes for producing old products. A geographical
entrepreneur moves technology, the products and processes that goes with it from one place to another,
usually from the developed world to the developing world. A sociological entrepreneur finds a new
situation in which to sell an old product.
Reason for Start up: Entrepreneurship can be classified into opportunity driven and necessity driven
based on the drive that led the entrepreneur to start the business. Opportunity driven entrepreneurs starts a
company because they see clear market opportunities to exploit. On the other hand the necessity driven
entrepreneur goes into business to create self employment and his or her primary concern is survival.
Generally, opportunity driven entrepreneurs are more growth oriented than necessity driven
entrepreneurs.

1.5 The Role of Entrepreneurship in the Economy

The entrepreneur is the catalyst that plays a crucial role in developing a country’s economy. Following are
some contributions of the entrepreneur.
1. Creation of Job Opportunities: The hard work of the entrepreneur often results in the formation of a
small business that opens job opportunities to many others in addition to the entrepreneur herself.
2. Better Production Methods and Products: Entrepreneurs often introduce better production methods
in terms of processing speed, quality of output, energy consumption, etc. Improved production
methods in turn result in better goods and services. The improvement may be in terms of price,
quality, location, ease of use, packaging, effectiveness of the product, etc.
3. Identification of Business opportunities and Markets: Entrepreneurs always keep their eyes open
to identify and exploit market opportunities. Once they identify an exploitable market opportunity,
they devote themselves to satisfying the market gap.
4. Abolition of monopoly and Enhancement of competition: Entrepreneurs often bring an end to
monopolies that have existed for long. Such entrepreneurs discover the key knowledge or secrete
technology that has endured a monopoly. Or they create alternative methods that can supply similar or
substitute goods and services. Similarly, by supplying substitute goods and services, entrepreneurs
foster keener competition in many markets, which naturally results in lower prices for consumers.
5. Increase in per Capita output and income: Entrepreneurial business activities result in increased
income for the entrepreneur, her employees and other related businesses. The supply of goods and

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 services in the economy will also be increased. This eventually leads to an increase in per capital
output and income in the economy.
6. Generation of Foreign Currency: Entrepreneurs that are in the export business generate significant
amount of foreign currency (dollar) to their home countries. This situation indirectly contributes to the
development of the countries’ economy by making more foreign currency available for increased
volume of imports.
7. Better Utilization of Resources: Some entrepreneurs become successful by inventing methods and
processes that enable the production of goods out of resource that have been ignored and labeled as
“useless”. Such initiative leads to improved use of neglected resources and conservation of the ones
already in use.

1.6. Entrepreneurship, creativity, Innovation and Invention

An innovation is gainful modification to the product or process. An existing product can be made better
by adding more features modifying design to make it safer or more users friendly. Or the method may be
modified to produce it in more cost effective way. Sometimes the raw materials are substituted to bring
down the cost. Innovation is the process of making change to something established by introducing
something new that add value to customers and contributes to the knowledge store of the organization.
Innovation is closely tied to creativity i.e. putting creative ideas into action is an innovation, whose
consequences should be positive. It is the process of doing something better for the first time, which was
not previously done by any entity.
An invention is a unique or novel device, method, composition or process that achieves a completely
unique function or result may be a radical breakthrough
Creativity is showing imagination & originality. Creative thinking is basically a process of searching,
screening & connecting thoughts. Creativity can be used for development of better business ideas in terms
of product, process, and market development aspects. Creativity is related to the generation of ideas which
are new and unique.
Example
The invention of the motorcycle was the biggest innovation over scooters. In early centuries, people used
to travel with scooters, for which they have to make lots of efforts to start it like they need to strike the
kick and knee down from either side if it doesn’t start. So, years and years passed away, and nobody even
thought for the invention of bikes. The invention of the motorcycle make them realize that they can also
ride bikes without making any extra efforts, they just have to click the switch and its starts automatically.
In this example, the thought of creation of a new traveling motorcycle is creativity, but the actual
invention of it is innovation.
One of creativity oriented problem solving & idea generating technique can be:
Brainstorming: Small groups of min 6 to max 12 people sit together and exchange their ideas freely
without any reservations. No criticism is allowed. A senior person moderates the discussions.